Subsidies and other non-market policies and practices can exacerbate excess capacity and threaten the long-term viability of the global steel industry. To the extent that subsidies are provided, policymakers should exercise caution to ensure that subsidies are not used to maintain or expand excess capacity.
Given the significant potential spillover effects of distortive subsidies across trade linkages and value chains, policymakers should also closely monitor evolving subsidy strategies in foreign markets. To ensure a level playing field, they should promote dialogue on government support for the steel industry through dedicated fora - ideally before such measures are introduced.
The differences identified between the drivers of subsidies in OECD Member countries and partner economies suggest that countries may follow very different criteria and/or processes to allocate subsidies to steel firms.
First, the provision of subsidies through cash grants in OECD Member countries is not correlated with government ownership, which would be consistent with the principles of non-discrimination set out in the OECD Recommendation on Competitive Neutrality.
Second, in contrast, subsidies provided through BMB in OECD Member countries are correlated with government ownership, although to a much lower level than in partner economies. Enhancing transparency concerning loan terms - such as rates, durations, and grace periods - offered by government agencies, export credit agencies, and state-owned banks to steel firms would help to pinpoint more accurately the source of BMB. BMB can be at times a challenging instrument to identify. For example, in some instances the sole perception of an (implicit) government backing can artificially boost a steel firm credit rating and result in cheaper financing from private banks.
Third, in partner economies, both grants and BMB are strongly correlated with higher government ownership, suggesting significant room for improving the fairness and transparency of these subsidy processes. The national context appears to play a major role, with the geographical location of steel firms being a key factor in determining subsidy allocation.
Fourth, governments use BMB during crises to support domestic steel firms. While this complicates statistical analysis of BMB’s impact on capacity, anecdotal evidence suggests that BMB plays a role in preventing the withdrawal of production capacity during downturns, thereby delaying market-driven restructuring. This counter-cyclical role of BMB is a double-edged sword: while it provides short-term relief, it may also impede necessary capacity reductions.
Fifth, in partner economies, larger firms in terms of total assets receive more subsidies, even when government ownership is controlled for. Profitability variables, which typically reflect market outcomes, show no significant correlation with subsidy allocation. The tendency to favour larger firms and those with greater government ownership risks creating market distortions and moral hazard (e.g. a “too big to fail” situation).
Sixth, higher indebtedness is correlated with greater subsidisation in partner economies, even when government ownership is considered. This contrasts with OECD Member countries, where subsidies are less likely to be granted to firms in poor financial health. Policymakers should be particularly wary of providing subsidies to steel firms in poor financial conditions, as the subsidies are more likely to be used for purposes other than the stated ones, and such subsidies are more likely to be used to maintain or expand capacity.
The report also supports recent findings from (Mercier, 2024[1]) on the link between subsidies and steel firms' capacity expansion.
First, in partner economies, cash grants have a significant impact on capacity expansion. For every additional USD 1 million in grants, steel firms increase their capacity by approximately 7 500 to 9 500 metric tonnes over the following years.
Conversely, reductions in grant amounts do not appear to have a statistically significant impact on capacity. This suggests that once capacity is installed, it tends to persist. Policymakers should exercise caution when providing grants to avoid contributing to global excess capacity.
Second, in OECD Member countries, cash grants show no correlation with capacity changes, either in the present or in future years. This aligns with observed adherence to better processes for providing grants, in line with the OECD Recommendation on Competitive Neutrality.
Third, although statistical evidence on the impact of increased BMB on capacity is inconclusive, the counter-cyclical use of BMB by governments is a well-established practice.
To conclude, these findings shed light on the specific steel firm’s characteristics that are driving the provision of subsidies, and the differences of such drivers in OECD Member countries and partner economies, as well as the impact of subsidies on steel firms’ crude steelmaking capacities, thus complementing a previous study on the impact of subsidies on steel firm’s financial performance (Mercier, 2024[1]). Government subsidies enable larger firms, more indebted firms and firms with greater government ownership to expand capacity beyond market-driven levels in normal times, and most likely to maintain capacity during subsequent steel industry crises. These subsidies distort market signals, allowing subsidised firms to continue operating while depressing global steel prices, which disproportionately affects unsubsidised firms by eroding their profit margins.
In this context, policymakers need to co-ordinate their policy efforts to tackle distortive subsidies and their effects (e.g. spillovers) by participating in dedicated global initiatives fora such as the GFSEC and keeping themselves aware of the latest worldwide developments.
On the analytical side, further studies are required to examine the impact of steel subsidies on recipient steel firms’ market shares, as even subsidies that do not directly increase net crude steelmaking capacity or affect their usual financial ratios may still have a distortive effect.